Asian Shares Struggle After U.S. Payrolls Shock

Asian shares struggled for traction on Monday after U.S. employment data raised doubts about the strength of the global economy, while investor jitters ahead of crucial Brexit votes in the UK parliament this week weighed on the pound.

China’s blue-chip CSI300 index gained 0.5 per cent after Friday’s 4.0 per cent fall, which was triggered after CITIC Securities issued a rare “sell” rating on a major insurer and by a clampdown on gray-market, margin financing.

“Trading volume is surging while foreign investors have been selling late last week,” said Naoki Tashiro, president of TS China Research, adding that suggests buying by retail investors is driving Chinese shares.

Japan’s Nikkei gained 0.2 per cent after four consecutive sessions in the red last week.

Wall Street’s main indexes posted their biggest weekly decline since the market tumbled at the end of 2018 last week, falling for the fifth consecutive day on Friday on the shocking payrolls data.

The U.S. economy created only 20,000 jobs in February, the weakest reading since September 2017.

As a result, bond yields dropped, with the 10-year Treasuries yield hitting a two-month low of 2.607 per cent. It last stood at 2.638 per cent.

The two-year yield also hit a two-month low of 2.438 per cent, edging near the current Fed funds rate around 2.40 per cent.

Fed funds futures are pricing in more than 20 per cent chance of a rate cut this year.

“The headline reading was so weak that the market could have reacted more aggressively.

“I would say markets reacted relatively calmly because there were elements that suggest weakness is temporary,” said Tomoaki Shishido, fixed income strategist at Nomura Securities.

While job growth was weak, average hourly earnings rose 11 cents, or 0.4 per cent , raising the annual increase to 3.4 per cent, the biggest gain since April 2009.

Retail sales figures for January’s due at 1230 GMT is a key focus given its December reading was surprisingly weak.

Fed Chair Jerome Powell said on Friday that the central bank will be careful not to shock financial markets as it stabilizes its bond portfolio, saying that it does not see problems in the U.S. economy that warrant an immediate change in its policy.

He also said the new normal for the Fed’s total liabilities may be in the ballpark of 16.5 per cent of GDP. Many market players now expect the Fed to unveil a plan to end its balance sheet runoff as early as next week.

Chinese data released over the weekend was slightly weaker though hopes for more policy support are likely to cushion any blows.

New bank loans in China fell a bit more than expected in February from a record the previous month, while money supply growth also missed forecasts.

Following the data, China’s central bank on Sunday pledged to further support the slowing economy by spurring loans and lowering borrowing costs.

A senior Chinese official said on Saturday China and the United States are still working day and night to achieve a trade deal, keeping alive hopes for an agreement to eliminate tariffs.

Yet doubts are creeping in as there is no clarity on when the leaders from the two countries can meet to seal any deals.

In the currency market, the euro stood at 1.12315 dollar, keeping some distance from Thursday’s 1.11765 dollar hit after the European Central Bank’s surprisingly dovish stance. It was its lowest since late June 2017.

The dollar edged down 0.1 per cent to 111.05 yen, having peaked at a 2-1/2-month high of 112.135 last Tuesday.

The British pound was wobbly at 1.2969 dollar, down 0.3 per cent.

It had fallen to a three-week low of 1.2945 dollar earlier on Monday on nervousness ahead of a crucial week in the UK’s troubled political debate over EU membership, with parliament expected to reject Prime Minister Theresa May’s deal in a vote on Tuesday.

If that happens, lawmakers will vote the next day on whether to leave without a deal on March 29. If they reject that, then on Thursday they are due to vote on a “limited” delay.

Oil prices rose on comments from Saudi oil minister Khalid al-Falih that an end to OPEC-led supply cuts was unlikely before June and on a report of falling U.S. drilling activity.

U.S. West Texas Intermediate (WTI) crude futures rose 0.5 percent to 56.33 dollars per barrel. Brent futures went up 0.3 per cent to 62.95 dollars a barrel.